Nov 22, 2010
Ben Bernanke's Bad Bets
Millions of Americans have no idea what "quantitative easing" is or how it will affect them personally. The recent announcement that the Federal Reserve will purchase another $600 billion in US Treasuries just adds to the mystery.
Fed Chief Ben Bernanke claims his reason for buying bonds is that he wants to stimulate the economy. His real motive is more likely the need to push up housing prices to save the banking system.
The banks may seem to have recovered, but they secretly hold millions of delinquent mortgages that are worth less than the value of the home. Rather than foreclose or sell the houses, the banks are just sitting on the mortgages, hoping for a miracle. There was testimony last week in the Senate from a Georgetown professor who said that the $400 billion in secondary mortgages held by the top four banks are only worth $200 billion. If these banks started writing off just these loans, it would wipe them out.
Bank of America might be the first Wall Street giant to crash and burn. It has a $2.3 trillion balance and none of the loans for its subsidiary Countrywide Financial -- the criminal enterprise at the center of the sub-prime securitization market – have been written off. The regulators and the CEO may say all is well, but stock investors have rendered their verdict. The value of Bank of America's outstanding stock is currently at around half of what it should be based on its “book value” -- what the company says its holdings are worth.
You may remember, in April of 2009, the Financial Standards Accounting Board (FASB) changed the rules on how banks value their financial holdings. When it comes to real estate holdings, banks can value them at whatever they think they will get in the future. Since the rule change, hundreds of years of accounting protocol have been trashed, and instead of “mark to market” (valuing an asset for what it will bring today), you have “mark to fantasy.” (http://usawatchdog.com/as-banks-go-so-goes-the-economy)
You can just sit on a house and wait for its value to increase. Abandoned homes only go down in value. There is a bank-owned house down the street from me that had the front door open all summer. You can't sell a house where the last residents were a family of raccoons. Many intercity homes have been systematically stripped of all their copper plumbing and fixtures.
While Bernanke is trying to save the banks, he is making a series of bets that have their own negative consequences. Over the past three years, the Fed has purchased over $2.3 trillion in U.S. debt. If interest rates start to rise, the Fed could lose hundreds of billions of dollars on these bonds.
The Fed also has a housing problem. It has made steady purchases of mortgage-backed securities, which increased from zero as of December 31, 2008, to over $1.25 trillion today. When Fannie Mae and Freddie Mac failed, the Federal Reserve added their loans to its balance sheet. Since the Fed suspended its rules against only accepting mortgage securities that are AAA rated, Bernanke and company may be holding a mountain of worthless paper.
The money Bernanke is providing to banks has failed to get into the hands of businesses and consumers. U.S. commercial banks are increasingly using the cash provided by the Federal Reserve to lend back to the government. Since June, the biggest banks bought about $127 billion of Treasuries. Commercial and industrial loans outstanding have fallen by about $68.5 billion this year.
The clock is rapidly running out on Bernanke's gamble. In 2006, the federal debt has increased by more than half. It now stands at $13.8 trillion and has morphed to 94 percent of GDP. With shortfall of $1.5 trillion projected for the next several years, the debt will quickly reach $20 trillion by 2015.
I have been following the financial markets all my adult life, and am at loss to describe how hopeless the odds are against us solving this crisis. If the mortgage mess and debt bubble don't get us, contagion from Europe ’s debt problems or the looming pension crisis will sink us.
Terry and I often talk about financial matters, and we believe this debt nightmare will unfold within the next couple of years. We can only guess where the Rapture fits in, but logic tells us it must be very near.
“And when these things begin to come to pass, then look up, and lift up your heads; for your redemption draweth nigh" (Luke 21:28).
Scanning a Fearful Future: Part 1
Commentators, secular and religious, weigh in incessantly on all aspects of the issues of greatest concern for these angst-ridden times. Those issues of most profound worry are collapsing economy, loss of personal liberty, and what is going to happen in the immediate and long-term future.
One can almost physically feel the fear in the emails I receive daily. Worries over what the future holds fill the articles and, more to the point for this commentary, dominate the personal missives that search for answers that might provide some degree of comfort.
One of the more mildly fearful emails I received this week says in part, “I watched the Hal Lindsey Report yesterday in which he said that he believes
before the Rapture that Christians were going to be persecuted. After reading your nearing midnight article today I can see that Christians
becoming more and more isolated for their support of Israel is just another sign that he is right. If Hal is right, with the rapture being as close as
it is then persecution for Christians has to be very close. What is your take on this?”
I listened to what Hal Lindsey had to say in that particular program, and he did paint a bleak picture for the immediate future of planet earth. He correctly pointed to even more terrible times for the world a bit further out–during the Tribulation. I had so many urging me to watch Glenn Beck’s program that I tuned in to that show on the several days he painted a frightening picture of what he says he believes George Soros and the New World Order minions have in mind for the world –particularly for the citizens of the United States.
Mr. Beck, like Hal Lindsey, gave as part of his view of things the prescription he thinks necessary to help with curing the sickness from which the United States and the world suffer. It is interesting that both Lindsey and Beck--one Christian, the other secular (in that he is a FOX News pundit)--give faith turned toward God as a major part of any such remedy.
Now, I am aware Glenn Beck is a Mormon, and that this fact makes the difference between the views of the two men and their recommendations quite distinct from one another. But the intensive urging of both to look more deeply into the crush of troubles weighing heavily on the minds of most everyone is more to the point. Both see what is happening in these strange times as emanating from dark, spiritual forces.
I know that Hal’s analysis is correct because he realizes that the source against which humanity--particularly Christians--struggles is found in God’s Word. I honestly don’t know exactly what Glenn Beck sees as the chief opponent against which humanity must be protected. He points to George Soros and his ilk, but never seems to get to the root of the evil we face.
Lindsey knows–as do you and I who try to be attuned to God’s Word in these prophetic times—that, according to the apostle Paul, “we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places” (Ephesians 6:12).
Paul wasn’t writing about the George Soroses of the world. He was forewarning of the dark powers behind the earthly megalomaniacs who would be our masters. Maybe Mr. Beck sees those darker powers, too, but he can’t bring himself about to cast God’s light upon that unseen realm. Perhaps that is because he sees us, the American people, as the answer to our own spiritual problems. If we will just summon the same patriotic grit of the founding fathers, we can overcome the human diabolists like Soros. To aspire to vanquish “spiritual wickedness in high places” –the dark, satanic forces of the spiritual world—would not be possible. When all is said and done, Beck’s viewpoint is inclusive of only the humanistic elements of the struggle mankind faces today. In this, sadly, he seems in lock-step with the world order builders that God laughs sarcastically at as recorded in Psalms 2.
I won’t go further about Glenn Beck so far as concerns his acumen in pointing the way to overcoming in the struggle we face as the apocalyptic storm nears. His religion’s prophetic beliefs dictate outcomes drastically different from those found in the Bible. Since he hasn’t overtly introduced those to his viewing/listening audiences–at least, not yet--I won’t address those here.
However, the biblical scenarios are the ones Hal Lindsey does introduce on a weekly basis to his audience. It is this view we will look at when thinking on the prospects you and I face, considering all of the bleak economic and societal news on the immediate horizon.
But, we’ve run out of column space for this week. We will begin scanning our darkening prophetic landscape through God’s radar next week, God willing.